General Mortgage Knowledge
General mortgage knowledge tests product structure, amortization, underwriting, property risk, and secondary-market rules. You need to compare loan programs and calculate basic ratios without confusing program-specific insurance with private mortgage insurance.
Products and terms
- Conventional conforming: eligible for Fannie Mae or Freddie Mac; PMI often required above 80% LTV. Under the Homeowners Protection Act, borrower-requested PMI cancellation is generally available at 80% original LTV with good payment history; automatic termination generally occurs at 78% based on the amortization schedule.
- FHA: government-insured; mortgage insurance premium applies; lower down payment; FHA loan limits and property standards apply.
- VA: guaranty for eligible veterans; Certificate of Eligibility; funding fee unless exempt; owner-occupancy required.
- USDA: rural eligibility and income limits; guarantee fee applies.
- ARM: initial fixed period, index and margin, periodic adjustment cap, lifetime cap; payment can rise.
Worked example
Purchase price is $400,000 and the loan is $320,000. LTV = 320,000 / 400,000 = 80%. On a conventional loan, PMI is generally not required at 80% LTV. If the loan were $360,000, LTV = 90%, so PMI would generally apply. Automatic termination is not immediate at 80% of current value; it is generally tied to 78% of original value under the scheduled amortization.
Traps
LTV uses the lesser of purchase price or appraised value, not just the appraised value. CLTV includes subordinate liens. FHA MIP is not PMI. VA entitlement is not a down-payment gift. ARM lifetime cap is not the same as the initial adjustment cap. Preapproval is not a final loan commitment.